Economy looks relatively strong heading into 2024

One year ago, most economists were predicting a recession – some said a severe one – in the United States in 2023.

Today, after 12 months of stronger-than-expected growth and inflation seemingly under control, most of those same economists are making a different forecast, and most of the time it doesn’t include the dreaded “R” word.

Only 24 percent of the economists surveyed during the fourth quarter last year by the National Association for Business Economics – an international group of economists, strategists, academics and policy-makers – said they believe a recession is more likely to happen than not this year.

A majority also believe that unemployment – now 3.7 percent – will rise during 2024 but will not reach five percent. Those same economists also predicted that inflation will continue to slow this year, but it probably won’t reach the Federal Reserve’s goal of two percent until 2025.

That’s not a bad forecast. Unlike January 2023, no one is predicting that the U.S. economy might tank, but there are potential pitfalls that are impossible to predict, according to one Inland economist.

Probably the biggest unknown is whether the Federal Reserve will raise interest rates, lower them or leave them where they are, said Jay Prag, economics professor at the Drucker School of Management at Claremont Graduate University.

The Federal Reserve has long kept inflation in check by raising interest rates, which reduces spending by making it harder to borrow money.

The Federal Reserve declined to cut interest rates in December, leaving the main rate at 5.25 percent. That’s the highest rate since the start of the millennium, but it hinted at cuts this year amid fears that high interest rates could cause long-term damage to the economy.

Prag, however, is skeptical of a serious rate cut. Interest rates will stay within a half-point of where they are now, which will keep housing prices high and cause the stock market to move up and down, much like it did in 2023.

Although it’s declining, inflation remains a factor partly because much of the COVID-19 relief money pumped into the economy remains in play, according to Prag.

“There are a lot of uncertainties no matter how you look at it, and that means businesses will hold back,” Prag said. “They won’t spend as much money and they won’t hire as many people. Overall, I expect the U.S. economy to do OK this year, but it won’t be a boom economy.  There are too many questions for people to put all of their chips on the table.”

If Prag is correct, the Inland housing market will continue to be held back by high interest rates, according to Prag.

“The housing market will be a problem, because interest rates will still be high,” Prag said. “Most people can’t afford to buy a home, and not everyone wants to move to the Inland Empire right now. Both of those factors slow the housing market.”

As for the Inland logistics industry, Prag believes it peaked about two years ago, when the pandemic led to a boom in online shopping, which created more demand for warehouse space.

But that trend has mostly receded, and while it will always be a major player in the Inland economy, logistics in the two-county region probably will start to recede somewhat in 2025, according to Prag.

“Most of the best locations, especially on the west end, are already occupied,” Prag said. “There’s also push-back in some communities, which was going to happen sooner or later. “Some people are getting tired of having warehouses built in their neighborhoods, so we have to find other areas of economic growth in the Inland Empire.”

Anyone who wants a pessimistic outlook regarding the Inland Empire economy in 2024 need look no further than the region’s December purchasing managers index, which was published Jan. 4 by the Institute of Applied Research and Policy Analysis at Cal State San Bernardino.

Besides confirming that Inland manufacturing is shrinking, at least for now, the report contained several negative quotes from local manufacturers:

• “2023 has been a down year. Glad it’s over and looking forward to a more positive 2024.”
• “Continues to be slow. We are forecasting an even slower 2024.”
• “It has been a very slow 4th quarter. Q-1 looks a little more promising but not near as well as the start of 2023.”
• “Same revenue as last year with increasing costs. Business climate does not look good.”

One business owner who participates in the monthly index says he expects his business to perform better in 2024 than it did last year, but he admitted that the Inland economy is not in its best shape as the new year begins.

“I think it’s a very questionable economy at this point,” said Bud Weisbart, co-owner of A&R Tarpaulins in Fontana, which conducts most of of its business with aerospace clients . “We have a political environment that is creating a lot of unknowns, which means if you’re a business you can’t take any risks. A lot of businesses will pull back and wait for some sort of sanity to return.”